Euphoric over cheap oil prices but the energy sector is still ‘under siege’ (First of two parts)

Year-end Report

by Myrna Velasco – January 2, 2016

from Manila Bulletin

Globally, the call is to institute policy fixes aimed at “greening” energy systems – but it must be a transformation of the existing energy paradigm without necessarily resorting to rapid and costly shifts in technology deployments.

But while traversing transition phases, some markets have their own domestic problems to solve while fusing with the world in pursuing a common objective of preserving a planet of which resources we just literally borrowed from the next generations.

As human beings, there is a natural tendency for us to desire having lives of fulfillment. But this has been the experts’ cautionary word on that “ecological deficit frame”: There is a need for efficient and sustainable utilization of energy resources and that a “cleaner energy future is inescapable.” The clock, by far, has already started ticking

LOCAL ENERGY SECTOR IN ‘JITTERS’

In the Philippines, the energy sector in 2015 opened with fidgety prospects of probable rolling brownouts because of extremely tight supply – and that it was anticipated to be compounded by the shutdown of the main gas fuel source for major power plants in the Luzon grid.

The Malampaya gas production platform was scheduled for maintenance March to April, and that could cut off gas supply to 2,700 megawatts of power capacity. Moreover, the shift to liquid fuels (i.e. condensate) was seen adding financial burden to the consumers.

Nevertheless, with the “traumatic yet heedful lessons” the industry had in the November-December 2013 awful events of electricity price spikes, such eventuality had been crossed without the anticipated adverse impacts. And so far even in the electric bills, there had not been much dissent from the consumers’ end.

Taking off from those industry episodes, the power industry in general had already turned more prudent on scheduling power plant shutdowns and in optimizing their facilities’ operations to minimize forced outages that can trigger power interruptions.

Oscar S. Reyes, President of Manila Electric Company (Meralco), has opined that the same 2013 lessons must be kept in the industry players’ mind as the country still faces “tight supply scenarios” this 2016.

While there are capacity additions coming on stream this year, they will not satiate yet the long-term reliable power supply needs of the country given projections of relentless economic growth moving forward.

THE ERA OF LOW ENERGY PRICES

Last year was predominantly a “chill period” for the consumers’ pockets – with power bills trimmed down to a six-year low in a particular month; while prices at the oil pumps had been rolled back more often compared to them hitting uptrends.

Market analysts and watchers have signified ‘mega-glut’ in oil supply that may persist even this 2016. But the flipside had been: Many petroleum exploration investments and activities have been halted resulting in job losses. Multinational oil giants (i.e. Shell and Chevron) have resorted to multi-billion capital expenditure (capex) cuts as they have been reeling hard from squeezed profits.

For the Philippines, the outcome of its tender for new contracts under its 2015 petroleum contracting round had been anemic – that even its expected “big league multinational players” had not really advanced to bid submissions.

On the global sphere, Iran’s oil flow to market – following the lifting of its sanction – will contribute to “oversupply” in the market. Plus, the indecision of the Organization of the Petroleum Exporting Countries (OPEC) on production cut had not been giving as much prop to the collapsing oil prices globally.

Prolonged downslide in prices is apparently a succor in the wallets, but isn’t this just delaying the bad news for consumers again? In the boom-and-bust cycle of the industry, the next episode after a “depressed state” is almost always fresh round of supply tightness that can consequently drive up prices.

In the power sector, the drop in oil prices and the concomitant collapse in coal prices had also pulled down electricity rates. Throughout the year, power utility giant Meralco made more announcements of monthly tariff reductions – a reversal of the distressing rate hikes in previous years.

Other than the skidding fuel prices, market measures such as the secondary cap in the Wholesale Electricity Spot Market (WESM) had also tempered settlement prices that were subsequently reflected in the bills.

LEADERSHIP CHANGEOVER

The transformative phase in the domestic energy sector – had not only been in policies and regulatory frameworks, but also in leaderships at both the Department of Energy and the Energy Regulatory Commission.

With the retirement of Zenaida G. Cruz-Ducut in July, former Justice Undersecretary Jose Vicente B. Salazar took her place at the ERC. Almost the same time, former Energy Secretary Carlos Jericho L. Petila handed over the DOE’s helm to career executive Zenaida Y. Monsada.

Following the suspension and eventual resignation of Emmanuel R. Ledesma Jr. as president of the Power Sector Assets and Liabilities Management Corporation (PSALM), long-time vice president Lourdes S. Alzona was also appointed later on by the company board to take his place.

It is now in the shoulders of these energy officials – along with those in the National Power Corporation, National Electrification Administration and the Philippine Electricity Market Corporation – to craft, re-write and/or enforce the policy guides, rules and regulatory edicts for forward investments, projects and programs in the sector.

So far, the DOE is hitting the road on injecting further “energy diversification” as the forthcoming capacity additions in the power sector will chiefly be coming from coal plants.

Taking cue from her predecessor, Ms Monsada has indicated that they will enforce the one-third rule in the power mix – meaning: To balance the share of each fuel source: 30 percent for renewables; 30 percent for coal; 30 percent for gas and the rest will be from other technologies.

On the regulatory front, priorities are set on clearing up ERC case backlogs; and bringing the restructured electricity sector closer to the long-desired regime of full retail competition.

Certainly for the country, preparing for the next “disastrous event in an industry” will no longer be enough especially if it wants to stay on track on its economic rise. Energy leaders then must start shaping powerful arguments and urgent actions toward policy and regulatory fixes and improvements.

And that call for action is now – not tomorrow – when the stakes are already out of hand into the viable solution-finding realm. (To be continued)